21 Feb 2011
Emerging markets hedge funds posted industry-leading gains in 2010, led by funds with regional exposure to Russia and the Middle East, according to Hedge Fund Research, Inc. As a direct result of these gains, assets invested in emerging market hedge funds increased by nearly $10 billion in the fourth quarter to end the year at more than $114 billion, approaching the record level of AUM for EM hedge funds set in 2007.
The HFRI Emerging Markets Index gained +11.79% for 2010, topping the gain of +10.30% for the HFRI Fund Weighted Composite Index. EM performance in 2010 follows gains of more than 40% in 2009 and is particularly significant considering the EM volatility which characterized 2010. Several regional EM equity markets posted declines for the year and the HFRI EM (Total) Index posted gains in only six of the twelve months in 2010.
Middle East-focused funds posted the strongest gains among all EM regions, with the HFRX MENA Index gaining +22.67% for 2010. This was followed by the HFRX Russia/Eastern Europe Index, which gained +21.60% for the year; the HFRX Multi- Emerging Markets Index, comprised of funds investing globally across several emerging market regions, posted a gain of +17.34%.
Investors allocated over $500 million in net new inflows to EM hedge funds in 4Q10, the largest quarterly inflow since 2Q08, reversing the trend of capital redemptions and investor risk aversion that had characterized the last nine quarters for EM hedge funds. Total capital invested in EM hedge funds peaked at over $116 billion in 2007 before drawing down to a post-financial crisis low of $66 billion in 1Q09. EM fund managers have expanded the number of funds compliant with UCITS III guidelines; in total, more than 140 Emerging Market hedge funds are presently UCITS III compliant.
The HFRI Emerging Markets Index gained +11.79% for 2010, topping the gain of +10.30% for the HFRI Fund Weighted Composite Index. EM performance in 2010 follows gains of more than 40% in 2009 and is particularly significant considering the EM volatility which characterized 2010. Several regional EM equity markets posted declines for the year and the HFRI EM (Total) Index posted gains in only six of the twelve months in 2010.
Middle East-focused funds posted the strongest gains among all EM regions, with the HFRX MENA Index gaining +22.67% for 2010. This was followed by the HFRX Russia/Eastern Europe Index, which gained +21.60% for the year; the HFRX Multi- Emerging Markets Index, comprised of funds investing globally across several emerging market regions, posted a gain of +17.34%.
Investors allocated over $500 million in net new inflows to EM hedge funds in 4Q10, the largest quarterly inflow since 2Q08, reversing the trend of capital redemptions and investor risk aversion that had characterized the last nine quarters for EM hedge funds. Total capital invested in EM hedge funds peaked at over $116 billion in 2007 before drawing down to a post-financial crisis low of $66 billion in 1Q09. EM fund managers have expanded the number of funds compliant with UCITS III guidelines; in total, more than 140 Emerging Market hedge funds are presently UCITS III compliant.
“As the global economic recovery accelerates into 2011, global investors interested in accessing superior growth characteristics will continue allocating to Emerging Markets hedge funds,” said Kenneth J. Heinz, President of Hedge Fund Research, Inc. “EM hedge funds allow investors to access local market expertise via sophisticated strategies and have demonstrated the tactical flexibility to manage through the challenges presented by inflation, liquidity, sovereign debt and currency instability inherent in EM investing.”
